Expense Fraud – Common Reimbursement Schemes by Business Travelers

Expense Fraud – Common Reimbursement Schemes by Business Travelers

One of the easiest ways to defraud a company is through expense reimbursements. According to a 2016 survey of over 1,000 business travelers by Chrome River, expense reporting fraud currently costs U.S. businesses almost $3 billion per year. The study effectively shows that despite available fraud detection technologies, expense reporting fraud is a current issue, and is causing many companies significant revenue losses.


There are many ways that employees can commit expense reporting fraud. The Association of Certified Fraud Examiners (ACFE) highlights four categories of fraud:

  • Multiple reimbursement schemes – When an employee requests to be reimbursed multiple times (likely from different individuals) for the same expense. This ‘double-dipping’ is most common when the employee has multiple forms of documentation that serve as proof of purchase.
  • Fictitious expense schemes – When an employee fabricates a purchase and requests to be reimbursed for that expense.
  • Overstated expense schemes – When an employee inflates the actual cost of a business expense prior to requesting reimbursement.
  • Mischaracterized expense schemes – When an employee attempts to receive reimbursement for a personal expense by characterizing it as a business expense.

A different study of over 1,000 employees commissioned by UK expense management software firm Webexpenses, underscores that the average amount of fraudulent claims on expense reports was just over US$38 per worker. However, of this number, only 18% have been caught—likely because of the small numbers involved. As small amounts certainly add up to impact the bottom line, businesses must be aware of some common areas where travelers have the potential to exploit the system:

  • Airline travel add-ons: Air travel expense fraud is particularly common as employees can easily add premium seating options or priority boarding fees. These types of additional fees may not be visible to travel managers or accountants, especially if employees are only asked to submit a credit card statement for reimbursement.
  • Gas mileage: Employees may claim additional mileage when they are driving for business purposes, or exaggerate their gasoline reimbursement. The Webexpenses study showed that petrol was the top expense area employees exaggerated (at 40%). This is especially simple to execute when employees are using cash to pay at the pump.
  • Personal expenses: A common occurrence is passing off personal expenses as business-related purchases. Often, these “bleisure” expenses are for gifts, meals or drinks for others, or even souvenirs. It becomes even more difficult for accountants and travel managers to make distinctions between personal and business-related purchases when travelers are asked to travel on weekends.
  • Out-of-policy spending: Although many organizations have specific guidelines about employee spending, some employees fail to follow these policies and still manage to be reimbursed. For example, a traveler may submit an expense for after-dinner drinks, when company policy only allows for the meal itself. When these differences are small, they are more likely to go unnoticed.
  • Out-of-pocket expenses: Another common strategy is to over-claim on out-of-pocket expenses such as gratuities for hotel bellhops, tips at restaurants, or fares in cabs that only take cash. When travelers are truly unable to use the company card or show proof of payment, these claims can certainly be legitimate….or they can be an excuse to defraud the system.
  • Refunded expenses. In cases where an employee purchased an item and then was subsequently refunded, submission of the original purchase may result in unjustified reimbursement. This may occur when airline flights are canceled, products are returned, or a hotel stay does not materialize.
  • Double reimbursement. When employees have more than one proof of payment for a single purchase, such as a credit card receipt and an original invoice, they may double-submit a claim and be reimbursed twice.

Bear in mind that intentions are often not malicious. For example, a traveler may veer from a stated travel policy to book tickets that are more convenient or choose a hotel in a preferred part of the city. In such a case, a traveler may spend a bit more, but not with the intention to swindle the organization. However, with the continuing globalization of business, and the corresponding increase in T&E to facilitate this growth, the risk of fraud and abuse in these areas must be monitored and addressed.

Utilizing a digital T&E management solution and a more robust auditing system go a long way in holding business travelers accountable for their claims. Solutions that track traveler data so expenses can be benchmarked against those of their peers also assist in detecting a potential problem.

To help reduce expense fraud and maximize eligible VAT refunds, many companies choose to implement VATBox, an automated, enterprise-wide, cloud-based VAT recovery solution. VATBox has successfully streamlined the expense management and global VAT recovery process, providing businesses with unrivaled visibility, compliance, and data integrity, and ultimately boosting its bottom line. Let us show you how your company can thrive in today’s complex financial times. Request a free demo here.

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